What is Customer Segmentation?

Like so many buzz words in business enterprise & advertising, “purchaser segmentation” is one of all those phrases that is interpreted by individuals to necessarily mean a lot of different types of matters. If the phrase “segmentation” were blurted out in a home of 20 small business men and women, odds are it would conger up 20 distinctive pictures.

So what is customer segmentation, and how can it be utilized to propel one’s company?

Segmentation outlined

Consumer segmentation is a technique for grouping shoppers primarily based upon similarities they share with respect to any proportions you deem related to your company – no matter if it be purchaser demands, channel preferences, interest in specific solution attributes, consumer profitability, and many others.

The essential is for you, the marketer, to initial decide on what basis you would like to section your shoppers (or prospects for that issue). And, the only way to answer this problem is to initially identify what your objective is for the segmentation, and hence what you want the segmentation to “do for you”.

Common segmentation objectives

Common targets for segmentation involve but are not limited to: the improvement of new solutions, the development of differentiated marketing and advertising communications, the enhancement of differential customer servicing & retention efforts, channel strategy, and the maximization of profit/ROI for present products.

As soon as you have made the decision what your aim is for the segmentation, you can response the issue, “what do I want the segmentation to do for me?”

A quick illustration: segmenting for purchaser winbacks

Let’s say you worked for a membership-based mostly magazine this sort of as Time Out New York (TONY). Your boss has questioned you to improve TONY’s retention tactic utilizing the present-day preserve tactic of sending individuals who have not long ago canceled their subscriptions (aka “attritors”) 1 of 3 “acquire-back” mailers. This current help save tactic has been used by TONY for the earlier 2 many years, and the system for figuring out which attritor gets which mailer has been centered mostly on “intuition” (aka random variety).

Your initially action in enterprise this job would be to obviously point out your goal. Your aim, as per your manager, is to optimize TONY’s retention method for latest attritors. This is shorthand for indicating, “I want you to increase your return on your retention-bucks invested”.

With no obtaining into the nitty gritty of the solution, what you effectively want to do is decide the relative ROIs for every single of the 3 mailers at the personal attritor stage. For each and every mailer, you then want to establish those attritors with higher ROIs (i.e., individuals attritors who re-instated their TONY subscriptions just after receiving the mailer and provided you with upcoming profits that perfectly-exceeded the price tag of the mailer).

Next, for every earn-again mailer you want to establish individuals characteristics which the higher-ROI attritors have in frequent, effectively making a profile for “large-ROI attritors” for each individual mailer.

The ultimate step is to operationalize the three profiles you’ve developed so you can use them to identify which of the 3 mailers, if any, to send to long term attritors. This essentially involves employing a system in which new attritors are matched up versus the 3 profiles to figure out which, if any, ideal describe them.

A additional refined strategy would be to construct predictive types that would compute the anticipated ROI for just about every mailer for every single attritor, and then mail out the mailer with the greatest anticipated ROI to the attritor. And, for people attritors in which all 3 mailers have negative expected ROIs you may possibly pick out not to ship any earn-again mailers.

Closing views

In closing, segmentation can be challenging and elaborate, and no question necessitates a wonderful deal of knowledge & experience. Putting in place flawed segmentation techniques can be much additional harmful to a business than not owning them at all. Nevertheless, when developed the suitable way, segmentation methods can deliver large returns relative to 1-dimensions-suits-all ways.